7 Innovative and adaptable industry

7.1 Direction

The Government wants to enhance competitiveness in the industry and has an ambition of making Norway one of the most innovative countries in Europe. Therefore, the Government has made a commitment to commercial research and innovation, and will use the long-term plan to lay the foundation for a more knowledge-intensive business community with a robust ability to adapt and create value.

Norway is a prosperous country after 150 years of economic growth. The growth in prosperity is due to factors such as efficient utilisation of labour and production factors, and our success in productive and less work-intensive industries. We have a stable society and we have exploited our natural advantages. High workforce participation rates, extensive trust and cooperation in working life, efficient domestic markets and openness to international markets have contributed to good framework conditions for the business community. At the same time, wage levels in Norway are high, causing particular challenges in labour-intensive industries. More effective organisation and higher work productivity can offset this, to some extent.

Like other high-cost countries, Norway must compete on knowledge as a basis for innovation and higher productivity, in order to maintain its high standard of living over time. The ability to develop and apply new knowledge is among the most important competitive factors for Norwegian trade and industry. This is crucial both for change and adaptation in existing industries, and as a basis for new business.

The Norwegian economy has a relatively high and growing degree of specialisation. This means that just a few sectors account for a large share of the country's gross domestic product (GDP). This is not uncommon in a small country. Small countries must exploit their natural and social advantages in order to use these resources in an effective manner. However, excessive specialisation in the economy can create vulnerability to business cycles.

The Norwegian economy is affected by major social change. The business community must be prepared for the transition to a low-emission society. Emerging economies are challenging the countries that have dominated production of high-profit, knowledge-intensive and innovation-driven goods and services. An ageing population will entail significant challenges as regards access to labour, and will lead to changes in society's demand for goods and services. Over the long term, petroleum activity on the Norwegian shelf will also decline, e.g. as a consequence of reduced access to resources, technological breakthroughs in alternative energy sources, products based on renewable biological material or altered framework conditions for greenhouse gas emissions. A reduction will have consequences not just for petroleum revenues, but also for business activity associated with operation and development throughout the entire petroleum-related business segment. To counteract this vulnerability in the Norwegian economy, it is important that we pave the way for rejuvenation and change towards even more knowledge-intensive business activity.

The business community conducts nearly half of all research and development in Norway, and most of this is financed by the companies themselves. Investments in research and development in Norwegian trade and industry account for a lower percentage of current value creation than the average for OECD countries. Much of this can be explained by the industry structure in Norway, although Norway is also below the OECD average after correction for the industry structure. The Norwegian business community consists of a substantial percentage of industries with relatively small investments in research and development, as compared with value creation. In addition, Norway has relatively few large companies, which normally undertake the largest investments. Nevertheless, it is not acceptable that a high-cost country like Norway invests less than the average in commercial research and development.

The Government wants to boost its commitment to research and higher education that can contribute to an innovative and adaptable business community. The Government wants to achieve:

• mobilisation for more research and development, and sound expertise across the full breadth of Norwegian industry

• more research-based innovation, new establishments and commercialisation

• business development based on social challenges

7.2 Mobilisation for more research and development and sound expertise throughout the Norwegian business community

The Government wants to promote a business community that embraces the most up-to-date knowledge available, and that develops new knowledge through research, development work and cooperation with expert knowledge environments. This applies to industries that already invest heavily in research and development, industries that traditionally invest little, and new industries.

Each enterprise must obviously consider what type of investments it will make in research and development. For society at large; however, the overall research commitment in the business community may be too low. The explanation for this is, in part, that society as a whole often benefits considerably more from such investments as compared to individual companies. Therefore, the Government wants to encourage public investments that spur the business community to invest more in research.

Public schemes stimulate private sector investment in research and development in several different ways. The threshold for investing can be lowered through tax relief, such as the Skattefunn tax deduction scheme. The public sector also creates schemes that directly stimulate research in trade and industry, and that also contribute to cooperation with research institutions. This applies, for example, to programmes under the Research Council of Norway and Horizon 2020.

The business community receives its greatest contribution to research-based knowledge through the stream of graduates with expertise based on up-to-date research. Some of these people proceed on to research careers, but most go straight into vocations within their expert fields and professions. The business community of the future is formed, in part, by how many people choose to pursue higher education, what they learn and how they continue to build on this expertise. Good and relevant courses of study and arenas for continuous development of expertise must be developed in closer dialogue and cooperation with the business community. This is particularly true for the highly-specialised segment of trade and industry. The State also contributes to the business community's ability to apply research-based knowledge through recruitment to researcher programmes and through the private sector Ph.D. scheme. The Government therefore wants to establish 500 new recruitment positions, with particular emphasis on the business community's need for doctorate personnel within mathematics, natural science and technology subjects, cf. Chapter 2.

Public spending also finances expert communities that are of such excellent quality and relevance that this alone encourages trade and industry to invest in research to gain access to knowledge which results in global advantages. The Norwegian Centre of Excellence (SFF) scheme is such a policy instrument.

The Government wants to strengthen general business schemes to encourage the full spectrum of business and industry to conduct more research, and to convert research into business development. Many companies have little experience in research and development, and need guidance on how to make use of regional, national and international programmes. The application processes must be simple, and involve minimal bureaucracy.

In 2012, public sector procurement amounted to around NOK 408 billion, or 14 per cent of the gross domestic product. The potential for using public procurements to mobilise the business community toward more research and innovation is considerable. A public sector that demands expert goods, services and solutions, and that cooperates with the business community, can be an important catalyst for more research and innovation. Continued development of public procurement schemes is an effective tool for promoting more R&D in trade and industry.

7.3 More innovation, start-up and commercialisation based on research

Established trade and industry often invests in research and development based on the need to improve its own products and processes. When the State wants to contribute to renewing the current structure of business and industry, it is therefore not enough to merely stimulate self-defined R&D activities. While new business activity is often based on existing activity, it is important to facilitate curiosity-driven and potentially more creative research and innovation that can form the basis for the emergence of brand new commercial activity, in both established and new businesses. Ground-breaking research and technological progress can be translated into new business activity.

Flexible schemes are needed that can elevate new, knowledge-intensive areas of business. This can take place in interaction between public and private expert communities, or as support to areas with special adaptation challenges. The ability of the research institutions to develop strategic, long-term knowledge will be intensified. The Government wants to make use of the institutions' expertise to strengthen recruitment of candidates with doctorates, particularly in math, science and technology subjects, cf. Chapter 2.

The Government wants to facilitate research-based new businesses, and commercialisation of public research results. Commercialisation of research results that originate in the public knowledge environments are more closely tied to the academic research front, and are to a lesser degree initiated by the needs for knowledge in the established business community. This means that the adaptations provided by research-based ideas may be original and rejuvenating, but may also encounter challenges in the form of a lack of expertise needed for commercial exploitation. New businesses that originate from existing companies may encounter the opposite problem, with substantial expertise in commercialisation, but fewer innovative ideas.

Developing new business activity is therefore not only a matter of developing new knowledge, but of combining knowledge and expertise found in different places. Programmes that provide interaction and sharing of knowledge between the business community, academia and investor groups are important. The same applies to the commercialisation system, and incubator schemes that promote commercialisation, good cooperation and help to remove bottlenecks in the value chain from knowledge development to the market.

Many input factors are necessary for success, but they are often not available at the same time or in the same place. Those who manage publicly funded programmes aimed at promoting research, innovation and business development – such as the Research Council of Norway, Innovation Norway and the Industrial Development Corporation of Norway (SIVA), are organised with separate areas of responsibility that, all together, cover much of this need. These agencies must further develop the possibility of coordinated and cohesive commitment to prioritised areas.

7.4 Business development based on social challenges

An innovative and adaptable business community is important in addressing many of the major challenges facing our society. With its strong point of departure in existing expertise and natural advantages, Norwegian industry has excellent prospects for developing products and technology that can contribute to solving problems related to climate, the environment, energy, health, safety and emergency planning, food safety, population growth and changes in demographic age distribution. The challenges are complex, require the involvement of many contributors and a broader connection between business development, social challenges, research efforts and knowledge development. The social challenges give business and industry opportunities to develop new, progressive activities. The companies that make use of these new opportunities and acquire a competitive advantage are better equipped to meet future adaptation challenges.

Climate and environmental challenges create new markets, and climate and environmental technology is considered one of the world's most promising markets. Norway has good opportunities here, cf. Chapter 4 on climate, environment and environmentally-friendly energy. Norway also has abundant opportunities to succeed within the bioeconomy, where e.g. products based on renewable biological material can reduce greenhouse gas emissions and develop new business activity, cf. Chapter 6 on enabling technologies.

The range of use for forestry raw materials is extensive. Targeted research and development efforts will contribute to the forestry industry extracting its potential for industrial growth within the bioeconomy. Therefore, the Government has invited participation in the work on Skog22, which will become a broad, uniting strategy for research, development, innovation and information in the forest-based value chains.

Norway also has good criteria in place for successful business development within universal design, welfare technology and health and care services. The health care sector is uniform and well-organised, there is good cooperation between the research environments at the universities and university hospitals, and also increasingly between the health trusts and the municipalities.